continuation of the selling corporation;
Notes: Nell Doctrine (in
relation to
Corporation’s Power to
Sell or Dispose
its Assets)
DECEMBER 20, 2017 JEFF REY
The 2017 Commercial Law Bar
Examination made mention of this:
Under the Nell Doctrine, so called
because it was first pronounced by the
Supreme Court in the 1965 ruling in
Nell v. Pacific Farms, Inc. (15 SCRA
415), the general rule is that where one
corporation sells or otherwise transfers
all of its assets to another corporation,
the latter is not liable for the debts and
liabilities of the transferor.
State the exceptions to the Nell
Doctrine. (4%)
The answer, as provided by the Supreme
Court in such case, is:
Generally where one corporation sells or
otherwise transfers all of its assets to
another corporation, the latter is not
liable for the debts and liabilities of the
transferor, except: (1) where the
purchaser expressly or impliedly agrees to
assume such debts; (2) where the
transaction amounts to a consolidation or
merger of the corporations; (3) where the
purchasing corporation is merely a
and (4) where the transaction is entered
into fraudulently in order to escape
liability for such debts.
Background of the case:
Nell Co. filed a civil case against Insular
Farms, Inc. for a sum of money plus interest,
attorney’s fees, and costs. A writ of
execution was issued by the court, but was
returned unsatisfied, stating that Insular
Farms had no leviable property. Thereafter,
Nell Co. filed another action against Pacific
Farms, Inc. for the collection of the same
amount, upon the theory that the latter is the
alter ego of Insular Farms. Nell Co.
supported its claim by alleging that Pacific
Farms had purchased all or substantially all
of the shares, as well as the real and personal
properties, of Insular Farms.
The record shows that, on March 21,
1958, Pacific Farms purchased 1,000
shares of stock of Insular Farms for
P285,126.99; that, thereupon, Pacific
Farms sold said shares of stock to
certain individuals, who forthwith
reorganized said corporation; and that
the board of directors thereof, as
reorganized, then caused its assets,
including its leasehold rights over a
public land in Bolinao, Pangasinan, to
be sold to Pacific Farms for P10,000.00.
The Supreme Court held that such facts do
not prove that Pacific Farms is the alter ego
of Insular Farms. There was neither proof
nor allegation that Pacific Farms had
expressly or impliedly agreed to assume the
debt of Insular Farms, or that the Pacific
Farms was a continuation of Insular Farms,
or that the sale of either the shares of stock
or the assets of Insular Farms to the Pacific
Farms had been entered into fraudulently, in
order to escape liability for the debt of the
Insular Farms.
In fact, such sales took place months before
the rendition of the judgment in the previous
case, and a month before the filing of the
present case.  Moreover, Pacific Farms
Page 1 of 2
purchased the shares as the highest bidder at
an auction sale held at the instance of the
bank, to which the shares were originally
pledged as a security for an obligation of
Insular Farms.

Neither was it claimed that these

transactions have resulted in the
consolidation or merger of the Insular Farms
and Pacific Farms.  On the contrary, Nell
Co’s theory to the effect that Pacific Farms
was an alter ego of the Insular Farms
negated such consolidation or merger, for a
corporation cannot be its own alter ego.
The case is generally related to the power of
a corporation to sell or dispose its assets, as
provided in Sec. 40 of the Corporation
Code.  In essence, it can be also related
with the Doctrine of Piercing of Corporate
Veil.

Page 2 of 2